Scott-Douglas Corp. v. Greyhound Corp.

304 A.2d 309, 1973 Del. Super. LEXIS 155
CourtSuperior Court of Delaware
DecidedFebruary 23, 1973
StatusPublished
Cited by34 cases

This text of 304 A.2d 309 (Scott-Douglas Corp. v. Greyhound Corp.) is published on Counsel Stack Legal Research, covering Superior Court of Delaware primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Scott-Douglas Corp. v. Greyhound Corp., 304 A.2d 309, 1973 Del. Super. LEXIS 155 (Del. Ct. App. 1973).

Opinion

OPINION

WRIGHT, Judge.

Defendants, Greyhound Corporation (“Greyhound”) and Horne’s Enterprises, Inc. (“Horne’s”), have moved for summary judgment and dismissal as to Greyhound in this action brought by Scott-Douglas Corporation, Max Seigel, Robert K. Seigel and Bernard Feinberg for breach of a franchise contract and fraud in the inducement of the contract.

Scott-Douglas Corporation was organized under the laws of this State for the purpose of owning and operating a Horne’s motor lodge near Newark, Delaware. The individual plaintiffs, Max and Robert Seigel and Bernard Feinberg were promoters of Scott-Douglas and are owners of a majority of the stock of the company. Greyhound, also a Delaware corporation, is a diversified national company which, during the period 1964-1969, owned almost all of Horne’s stock. Horne’s, a Florida corporation, now a subsidiary of Formco, also a Florida corporation, is and was engaged in the ownership, operation and licensing of restaurants and motor lodges.

Beginning in approximately 1963, Greyhound embarked upon an ambitious program of diversification into fields outside the bus and transportation business in which it had been engaged for 40 years. In 1964, Greyhound acquired nearly all of the stock of Horne’s from the latter company’s founder. For organizational purposes, Horne’s was placed under Greyhound Food Management, Inc. (“Food Management”), a wholly-owned Greyhound subsidiary, together with two other food service subsidiaries, Post Houses, Inc. and Prophet Foods Co. There were common directors and officers linking Greyhound, Food Management and the three food-service subsidiaries both horizontally and vertically.

Being interested in growth during its diversification, Greyhound adopted a policy of acquiring companies it considered to have high growth potential; if the subsidiaries failed to perform up to expectations, they were sold or otherwise disposed of by Greyhound. After coming under Greyhound’s control, Horne’s adopted a plan to expand its territory along major segments of the Interstate Highway network through franchises. This plan it pursued until September, 1968 when Horne’s suspended issuance of additional franchises and disposed of properties it considered surplus. This decision followed by several months the election of Jess Nicks as chairman of Food Management’s board of directors. Nicks, upon assuming office, undertook a review of the operations and performance of the companies subordinate to Food Management in the corporate structure and concluded that Horne’s was a marginal investment in terms of Greyhound’s corporate policies.

*313 Thus, when another company expressed interest in acquiring the assets of Horne’s, a formal offer was requested. Negotiations toward the sale of assets continued through the summer and fall of 1968 until, in November, 1968, the Horne’s board of directors adopted a resolution recommending acceptance of the offer. It was Greyhound practice to hold meetings of the parent and subsidiary companies at the same place and time, and so the resolution was speedily approved by the boards of Food Management and Greyhound Corporation in succession the same day. The sale agreement was executed in January, 1969 and settlement of the transaction took place on April 30 of that year.

Max Seigel had been in the real estate business for a number of years with his own firm and before that with a Manhattan organization. He had interests in several hotels, motels and restaurants, including franchised operations, in a number of States. Robert Seigel, Max’s son, had worked for his father’s firm, but had little or no experience in the operation of hotels, motels or restaurants. Bernard Feinberg, who had participated in several ventures with Max, was an attorney of 30 years’ experience practicing in New Jersey. The three men became interested in acquiring a motor lodge franchise from Horne’s, apparently hoping to obtain the rights to develop a chain of Horne’s outlets in the Middle Atlantic region.

By April, 1965, their contacts with Horne’s had progressed to the stage where Robert met with Travis Heins of Horne’s to inspect the site of a projected Horne’s motor lodge at Newark, Delaware where Horne’s already had a restaurant in operation. Robert expressed some reservations concerning Horne’s desire to erect a 100-unit motel because of the poor visibility of the site from Interstate Highway 95 and considered that a 50-unit lodge would suffice. According to Robert, Heins responded, “Well, we expect that you can anticipate 50 per cent occupancy from the Greyhound buses.” The record indicates that no further mention was made of bus trade at the lodge during the inspection or at any time prior to execution of the Franchise Agreement with Horne’s two months after the meeting.

In October, 1965, Robert attended a meeting sponsored by Horne’s at Detroit, Michigan for existing and prospective franchises. E. T. Hughes, Executive Vice-President of Horne’s, and W. E. Las-siter, Executive Vice-President of Food Management, were among those who addressed the meeting. The minutes of the meeting summarize Lassiter’s remarks thus:

“. . . He made clear that Greyhound did not wish to exercise unnecessary control or be otherwise restrictive with Horne’s Enterprises, or Horne’s Franchisees. It was Mr. Lassiter’s opinion that with the Greyhound Corporation behind Horne’s legally, morally, spiritually, and financially, Horne’s will today become the leader in Restaurant-Motel Development.”

The minutes further reflect that Hughes, summing up his remarks, “advised that it is felt that Horne’s now has a realistic Development Program, and with the Franchisees, Horne’s, and Greyhound Food Management, Inc. working as a team, we can accomplish our objectives. It is felt that this program will give the Horne’s Franchisees the advantages of Referral Business, and the Interstate image needed to make their operations attractive and profitable ventures.”

Plaintiffs further claim that Hughes told Robert in a telephone conversation in the summer of 1965 that Horne’s would install a cocktail lounge in its Newark restaurant when the motor lodge opened for business. Finally, plaintiffs allege that Horne’s represented that it would establish and operate a computer reservation system using Greyhound bus lines equipment. However, Robert admitted in his deposition that this alleged representation may not have occurred in 1965, but in 1968.

*314 During 1965, while the events described above were taking place, the Seigels and Feinberg were working to obtain the required financing for the motor lodge. Having obtained commitments for financing construction of the motor lodge, plaintiffs and Horne’s entered upon formal negotiations which culminated in the written agreement of July 29, 1966. The contract, termed a “Franchise Agreement”, was prepared by Horne’s, transmitted to plaintiffs who executed it in New Jersey, and returned it to Horne’s Detroit, Michigan headquarters where it was signed by officers of Horne’s on July 29, 1966.

In preparation for signing the Franchise Agreement, the individual plaintiffs caused Scott-Douglas Corporation to be organized under the General Corporation Law of Delaware on June 13, 1966. Robert was President, Max the Treasurer, Feinberg, Secretary and Carl Greenburg, the Vice-President.

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Bluebook (online)
304 A.2d 309, 1973 Del. Super. LEXIS 155, Counsel Stack Legal Research, https://law.counselstack.com/opinion/scott-douglas-corp-v-greyhound-corp-delsuperct-1973.